DXC On ‘Lumpy’ Path To Digital Growth, CEO Says

‘It's like a whole different world, which is just so exciting,’ CEO Mike Lawrie tells investors during the company’s fourth quarter earnings call. ‘And as we continue to drive more of this digital revenue, that becomes more and more what the company looks like.’

While revenue, income and earnings per share were all down at DXC Technology -- for the quarter and the year -- the company’s CEO reassured investors that the firm is making a profitable transition to its digital business, even if it’s “lumpy” in the short term.

“Digital growth continues to offset more of the decline in our traditional business,” CEO Mike Lawrie told investors during the company’s fourth quarter earnings call after the bell on Thursday.

“Sequentially, digital revenue in the fourth quarter more than offset the decline in the traditional business. Now, this balance between digital growth and traditional decline will continue to be lumpy as we go through the next year. But, this is the revenue dynamic that we talked about before that will ultimately support long-term growth for the company,” he said.

Part of that digital turnaround involves job cuts inside the company. Lawrie said Tysons, Va.-based DXC laid off 10,000 workers this year, about 7 percent of its workforce, which he said was done to “continue to shift the balance of our workforce to digital capabilities.” He said DXC plans to add about 1,500 new workers this quarter.

“We're not having problems finding people, recruiting people or on-boarding them and they’re beginning to really contribute positively to the business as we go forward,” Lawrie said. “We saw some of that in the growth that we reported. We're also continuing to reskill hundreds of current DXC employees. So, we're able to -- as we continue to move people off of the offerings where we have revenue run-off, we're increasingly retraining and reskilling, so we can employ them on other opportunities.”

Digital revenue – from digital work place bookings, cloud infrastructure, enterprise and cloud applications – was up 22 percent for the quarter year over year, Lawrie said. For the year, that revenue grew by 15.8 percent. He said the demand for the company’s digital capabilities is also up with bookings showing a gain of 50 percent year over year.

“We’re partnering with many of our clients to help generate savings to fund large digital transformations,” Lawrie said. “In many cases, we provided these savings through lower operating costs on traditional service which initially reduces revenue and profit on the account. In return, we secure commitments on the client to expand DXC’s wallet share and future digital spend, which allows us to grow revenue and profit over time.”

Lawrie said DXC is leveraging its existing customers to accelerate digital transformations, including a “major global airline” where the company used its long-standing relationship to sign a seven-year digital transformation deal that reduces the carrier’s operating costs, in order to fund the digital work. He said DXC inked a similar deal with a large European financial services.

“This results in initial reduction in revenue and profit on the account but drives top-line and bottom-line growth over the full lifecycle of the contract,” Lawrie said.

Using enterprise cloud apps, the company’s consulting business won “a next generation” SAP deal with a South American utility provider and a “CRM transformation program” leveraging Salesforce.com for a large oil and gas company, Lawrie said.

“It's like a whole different world, which is just so exciting,” Lawrie said. “And as we continue to drive more of this digital revenue, that becomes more and more what the company looks like. And if you combine that with our unbelievable capabilities operationally with our ITO business, our application business, it really is a great opportunity to co-create with the clients.”

Revenue for the fourth quarter ending March 31 was $5.28 billion compared to $5.58 billion in the year ago quarter, down 5.38 percent. For fiscal 2019, revenue came in at $20.75 billion versus $21.73 billion in FY 18, a drop of 4.5 percent.

DXC stated a net income of $271 million for the quarter for an earnings per share of $1.01 and $1.26 billion for the fiscal year, for an earnings per share there of $4.35.

DXC stock was up 2.5 percent to $53.28 on Friday afternoon.